Farm Ireland

Tuesday 21 November 2017

You can bank on a proper business plan

Comprehensive document with personal touch best way to swing cases for loans and grants

Noel Delaney

Having trouble convincing the banks that you are good for the money? Struggling to win a grant for an on-farm development?

There is one crucial document that can swing these situations. A business plan.

It sounds like something for people who spend more of their waking hours in suits than farmers, but without a business plan, bankers and grant agency administrators really have no concrete idea of how your business will operate if they choose to back it.

There is no point expecting somebody else to do this for you since no-one knows your business better than you do.

Therefore you need to take ownership of the business plan from the outset. Undoubtedly there are times when specialist advisers will be required to assist but it is important to keep the business plan personal. The positivity and passion that you have for your own business needs to be transcribed into that business plan.

A good business plan should also be a benefit for you in terms of allowing you to manage your business better.

As a starting point when creating the business plan, always use methods that come naturally to you. Consider the following questions:

•What is your product?

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•Who will buy it and how will you target them?

•How much will it cost you to make?

•How much can you sell it for?

•How much can you potentially sell in a year?

•Is the annual profit sufficient to sustain and develop ongoing business?

If the answer to the last point is yes then you probably already have the bones of a good business model.

Building a Business Plan -- The eight-Step Approach

Although there are numerous templates on offer either online (Teagasc have a very good one) or in books on the subject, most plans follow a prescribed format that can be tailored specifically for individual users.

•Executive summary -- The executive summary should summarise all of the key points identified in the business plan and be concise in length, usually no more than one page and give an overall view of the business and its potential.

First impressions do last, so it is important to note that this section of the business plan should be written last, and should sufficiently excite the reader to ensure that they will continue to the main body of the business plan. Depending on the targeted reader, this element of the business plan should be capable of being adapted and tailored to get maximum impact.

•Background and description of the business -- Depending on the stage your business is at on its life cycle, it is important to provide a brief summary of the development of the business to date, which can also include brief details of factors influencing the market in which it operates.

The business plan should also include the unique selling points that the business contains and the rationale behind the business success to date.

This section should also detail the present legal structure and funding of the business, including an outline of existing security/guarantees provided to existing lenders.

•Products and services -- The business plan should clearly describe the nature of the service or product being offered and needs to be easily understandable by the reader, whom you have to assume may have a reduced level of knowledge of your product or service.

This section should also give an indication of future development plans. Whether you are a feed-supply company or a dairy farmer, ensure that you sell your product to the reader.

•Market analysis and competition -- A simple business mantra is "know your market".

This area of the business plan should have sufficient analysis to prove that you understand not only the market itself but your business's position and size in that market in which you operate. There are many simple techniques to review the market, but a simple SWOT analysis which critiques the strengths, weakness, opportunities and threats using a balanced score card is highly recommended.

•Sales and marketing -- This should include a comprehensive cost analysis of whatever way your product is sold. In addition, the advantages of the chosen method will need to be detailed in the business plan.

•Management structure and personnel -- In many cases, the strength and experience of the farm or business owner are key elements in the decision making of prospective investors.

Never underestimate the strength of your own and your key staff's qualities and remember people do business with people. So highlight the respective strengths and experience of any key staff. Depending on the size of your operation it is important for this section to clarify the relationship between the ownership and management of the business.

•Forecast financial information and projections -- All business plans will require summary financial information to include an integrated profit and loss account, balance sheet and cashflow statement usually for the following three years. Where your business is already operating historic data is also a requirement.

Make sure you keep this section clear and concise. But most importantly, remember to keep it factual and accurate. People tend to be over ambitious with their projections. Always be sure to consider who will be reading the financial information. A banking institution will have dedicated staff that will stress-test your calculations.

It is usual to have the headline figures with the supporting notes and assumptions in the body of the report and the more detailed figures and assumptions included in an appendix. People often use a financial adviser for this section of the report, but make sure to keep ownership of the figures and calculations. Remember, ultimately it will be you who will be selling the entire business plan to the third-party user. You will need to be able to explain the figures and the underlying assumptions.

•Appendices -- These can be used to include detailed information in support of the contents of the business plan. The first appendix should be the financial information and the rest in an order relevant to the plan itself.

Noel Delaney is a partner at Grant Thornton, Newbridge, specialising in the agri-food sector. Email:

Indo Farming